Market Insights

Amazon.com is fighting to new highs, and one big options trader may expect a bigger move.

This large transaction was detected yesterday in the e-commerce and cloud-computing giant:

• 35,000 August 320 calls were purchased for $6.96.
• 35,000 August 370 calls were sold for $1.66.
• Volume was more than 10 times open interest in each contract, which suggests new money was put to to work.

Calls fix the price where a security can be purchased. Traders can buy them to position for upside or sell them to generate a credit. Yesterday’s transaction combined the two in a vertical spread, which can leverage a defined move.

The position cost $5.30 and will expand to $50 if AMZN closes at $370 or higher on expiration. The stock closed at $272.05 yesterday, so that would translate into a gain of 843 percent from the shares climbing 36 percent. The spread will expire worthless if it stays under $320.

The potentially bullish trade appeared after growth at the AWS cloud-computing unit rose more than expected to a multiyear high. Earnings, revenue and guidance were all above Wall Street estimates. CEO Andy Jassy also reported strong demand for AMZN’s custom Trainium chips.

That helped push the stock above its previous high from November, which could make some chart watchers think it’s broken out.

Overall option volume in the company was slightly above average, according to TradeStation data. Calls outnumbered puts by 3-to-1.

Amazon.com (AMZN), daily chart, with select patterns and indicators.

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